26 Mar 2010
On 18 March 2010 the Cayman Islands Court of Appeal sent a message that winding up petitions should not be used to place undue and improper pressure on companies to accede to investor demands. The Court of Appeal struck out two winding up petitions presented against a solvent hedge fund and ordered that the Investor which had petitioned should pay the Fund’s costs on an indemnity basis.
The hedge fund was a substantial Cayman Islands domiciled feeder fund specialising in investments in credit markets and distressed assets. The investor requested the redemption of all of its shares on a redemption date of 30 September 2008. During August and September 2008 the fund received a number of redemption requests amidst the unprecedented and well publicised global market turmoil and, to alleviate that pressure, offered a restructuring proposal or “exchange offer” to all investors. Ultimately, the investor was the only one which refused to enter into some form of the exchange offer and sought, instead, to enforce its redemption request against the fund. Before the date upon which the Fund was required to make payments to redeeming investors, the fund imposed a suspension of voluntary redemptions (including the right to receive redemption proceeds).
In April 2009 the investor started proceedings against the fund in the Cayman Islands by declaring that the redemption price was $27,227,268.80, that at least 15% of that amount had to be paid in cash.
In July 2009 the investor threatened to present a contributory’s winding up petition against the fund unless the full amount claimed was paid within 14 days.
On 16 September 2009, the investor presented a contributory’s winding up petition against the fund. The fund immediately sought an urgent hearing seeking that the petition be struck out as an abuse of the Court’s process. Apparently hedging its bets as to the prematurity of the first petition, the investor presented a second identical petition on 22 September 2009 (commencing yet another set of Grand Court proceedings), but without withdrawing the first.
The fund appealed to the Cayman Islands Court of Appeal.
The Court came to the conclusion that disputes between an investor and a hedge fund should ordinarily be litigated by way of writ of summons or originating process in the Grand Court’s Financial Services Division. It is inappropriate and likely to be an abuse of the Court’s process for an investor to seek to use the threat of a winding up petition as a means of placing undue and improper pressure on a company or fund to accede to its demands.
The hedge fund was a substantial Cayman Islands domiciled feeder fund specialising in investments in credit markets and distressed assets. The investor requested the redemption of all of its shares on a redemption date of 30 September 2008. During August and September 2008 the fund received a number of redemption requests amidst the unprecedented and well publicised global market turmoil and, to alleviate that pressure, offered a restructuring proposal or “exchange offer” to all investors. Ultimately, the investor was the only one which refused to enter into some form of the exchange offer and sought, instead, to enforce its redemption request against the fund. Before the date upon which the Fund was required to make payments to redeeming investors, the fund imposed a suspension of voluntary redemptions (including the right to receive redemption proceeds).
In April 2009 the investor started proceedings against the fund in the Cayman Islands by declaring that the redemption price was $27,227,268.80, that at least 15% of that amount had to be paid in cash.
In July 2009 the investor threatened to present a contributory’s winding up petition against the fund unless the full amount claimed was paid within 14 days.
On 16 September 2009, the investor presented a contributory’s winding up petition against the fund. The fund immediately sought an urgent hearing seeking that the petition be struck out as an abuse of the Court’s process. Apparently hedging its bets as to the prematurity of the first petition, the investor presented a second identical petition on 22 September 2009 (commencing yet another set of Grand Court proceedings), but without withdrawing the first.
The fund appealed to the Cayman Islands Court of Appeal.
The Court came to the conclusion that disputes between an investor and a hedge fund should ordinarily be litigated by way of writ of summons or originating process in the Grand Court’s Financial Services Division. It is inappropriate and likely to be an abuse of the Court’s process for an investor to seek to use the threat of a winding up petition as a means of placing undue and improper pressure on a company or fund to accede to its demands.
